Community Bankers Trust Corporation Reports Results for Third Quarter of 2017

RICHMOND, Va., Oct. 26, 2017 /PRNewswire/ -- Community Bankers Trust Corporation (the "Company") (NASDAQ:  ESXB), the holding company for Essex Bank (the "Bank"), today reported unaudited results for the third quarter and first nine months of 2017.

Income Statement - Three Months ended September 30, 2017 compared with Three Months ended June 30, 2017

• Net income was $2.4 million for the third quarter of 2017 compared with $2.9 million in the second quarter of 2017.
• Interest and fees on loans increased $175,000 on a linked quarter basis.
• Income tax expense increased $227,000 in the third quarter of 2017, as the effective rate returned to a normalized basis, 27.6%, for the quarter compared with an effective rate of 19.1% in the prior quarter.
• There was a provision for loan losses of $150,000 during the quarter versus none in the second quarter of 2017.

Income Statement - Nine Months ended September 30, 2017 compared with Nine Months ended September 30, 2016

• Net income of $7.8 million for the first nine months of 2017 increased $647,000, or 9.0%, over the same period in 2016. 
• Basic earnings per share of $0.36 for the first nine months of 2017 compares with $0.33 for the first nine months of 2016.  Fully diluted earnings per share were $0.35 for the first nine months of 2017.
• Total interest and dividend income of $39.6 million increased $3.0 million, or 8.1%.
• Interest and fees on loans increased 11.6%, or $3.1 million.
• Net interest income increased $2.0 million, or 6.5%.

Income Statement - Three Months ended September 30, 2017 compared with Three Months ended September 30, 2016

• Net income of $2.4 million for the third quarter of 2017 was a slight decrease of $42,000 from the same period in 2016 despite operating three additional branches for a full quarter in the third quarter of 2017.
• Total interest and dividend income increased $982,000, or 7.9%, in the third quarter of 2017 over the same period in 2016, led by interest and fees on loans, which increased $971,000 or 10.6%.
• Net interest income after provision for loan losses increased $623,000, or 6.1%, year-over-year.

Balance Sheet Highlights - September 30, 2017

• Retail deposits grew $157.6 million, or 17.4%, year-over-year.
• Loans, excluding purchased credit impaired ("PCI") loans, grew $78.2 million, or 9.6%, from $811.8 million at September 30, 2016 to $890.0 million at September 30, 2017.
• Other real estate owned declined 44.8% year-over-year and totaled $2.7 million at September 30, 2017.
• Noninterest bearing deposits grew $16.0 million, or 12.4%, year-over-year and totaled $145.3 million.
• Deposit growth for the first nine months of 2017 was $41.1 million, or 4.0%. Strong retail deposit growth of $80.0 million, or 8.1%, allowed management to lower brokered deposit balances by $38.9 million.
• On September 28, 2017, the Bank purchased an in-market adjustable rate mortgage loan pool of $15.7 million, which is expected to benefit interest income beginning in the fourth quarter of 2017.

MANAGEMENT COMMENTS

Rex L. Smith, III, President and Chief Executive Officer, stated, "The Bank continues to build value for shareholders, although the third quarter of 2017 produced mixed results.  Overall, assets and non-interest bearing deposits have grown better than expected, thanks in part to increasing our branch network and building market share.  This growth, coupled with our disciplined approach to pricing, keeps our balance sheet and overall long-term value strong."

Smith added, "Loan growth for the quarter was lower than expected, but our lenders have been working hard to offset some of the economic lull that banks experienced during the quarter.  Our loan growth for the past 12 months, however, remained better than we had anticipated.  Net income was also lower than expected, but that was the result of known factors, such as costs associated with branch expansion and digital banking enhancements.  Our efforts in these areas will improve the overall position of the Bank in future quarters."

Smith concluded, "The Bank remains committed to its strategies for the fourth quarter and into 2018.  We will continue to grow the types of loans and deposits that we need to improve the margin and remain ready for a rising rate environment.  In addition, our focus on gaining market share, through both locations and delivery systems, will create strong returns for shareholders."

RESULTS OF OPERATIONS

Net income was $2.4 million for the third quarter of 2017, compared with net income of $2.9 million in the second quarter of 2017 and net income of $2.5 million in the third quarter of 2016.  Earnings per common share, basic and fully diluted, were $0.11 per share, $0.13 per share and $0.11 per share for the three months ended September 30, 2017, June 30, 2017, and September 30, 2016, respectively.

Net income was $7.8 million for the nine months ended September 30, 2017 versus net income of $7.2 million for the same period in 2016.  Basic earnings per common share were $0.36 per share and $0.33 per share for the nine months ended September 30, 2017 and September 30, 2016, respectively. Fully diluted earnings per common share were $0.35 per share and $0.33 per share for the nine months ended September 30, 2017 and September 30, 2016, respectively.

The following table presents summary income statements for the three months ended September 30, 2017, June 30, 2017 and September 30, 2016, and the nine months ended September 30, 2017 and September 30, 2016.

In this earnings release, the results reported for loans and loan growth do not include PCI loans, unless otherwise specifically stated.

Net Interest Income

Linked Quarter Basis

Net interest income was $11.0 million for each of the quarters ended September 30, 2017 and June 30, 2017.  Interest income increased $169,000, or 1.3%, and interest expense increased $117,000, or 5.2%, resulting in a $52,000 increase in net interest income. 

Interest and fees on loans on a linked quarter basis increased $175,000, or 1.8%, to $10.1 million for the third quarter of 2017. Interest income on PCI loans declined $30,000. Interest income on total loans of the combined portfolios was $11.6 million with a yield of 5.00% for the third quarter of 2017. The tax-equivalent yield of 4.51% on earning assets was a slight decrease of two basis points on a linked quarter basis.  

Securities income equaled $1.8 million in each of the third and second quarters of 2017.  On a tax equivalent basis, securities income was $2.1 million for each of the third and second quarters of 2017.  The tax-equivalent rate of return on the portfolio was 3.10% in the third quarter of 2017 and 3.09% in the second quarter of 2017.

Interest expense increased $117,000, or 5.2%, on a linked quarter basis as the rates paid on interest bearing balances increased by three basis points, from 0.89% in the second quarter of 2017 to 0.92% in the third quarter of 2017.  The Company's increase in funding costs was the result of replacing wholesale funding sources with retail deposits, some of which were from new branch promotions. The cost of FHLB and other borrowings was 1.57% for the third quarter of 2017 compared with 1.42% for the second quarter of 2017 while the cost of interest bearing deposits increased from 0.84% in the second quarter of 2017 to 0.87% in the third quarter of 2017.  During the third quarter of 2017, the average balance of FHLB borrowings declined $7.1 million.

With the changes in net interest income noted above, the tax equivalent net interest margin was 3.74% in the third quarter of 2017 and 3.78% in the second quarter of 2017. Likewise, the interest spread was 3.59% and 3.64%, respectively, in the third and second quarters of 2017.

Year-Over-Year Nine Months

For the first nine months of 2017, net interest income increased $2.0 million, or 6.5%, and was $32.9 million. The tax-equivalent yield on earning assets was 4.55% for the first nine months of 2017 compared with 4.52% for the first nine months of 2016. Interest and fees on loans of $29.7 million was an increase of $3.1 million compared with $26.6 million for the same period in 2016.  Interest and fees on PCI loans declined $349,000 over this same time frame.  Securities income increased $156,000 for the first nine months of 2017 compared with the same period in 2016. The tax-equivalent yield on the securities portfolio was 3.14% for the first nine months of 2017 compared with 3.11% for the same time frame in 2016.

Interest expense of $6.7 million represented an increase of $961,000, or 16.8%, in the first nine months of 2017 compared with the same period in 2016. Total average interest bearing liabilities increased 6.2%, or $58.7 million, as loan growth has also been funded by an average balance increase of $21.1 million, or 18.9%, in noninterest bearing deposits.

The tax equivalent net interest margin was 3.80% for the first nine months of 2017 compared with 3.82% for the first nine months of 2016.  The net interest spread was 3.66% for the first nine months of 2017 versus 3.72% for the first nine months of 2016.

Year-Over-Year Quarter

Net interest income increased $523,000, or 5.0%, from the third quarter of 2016 to the third quarter of 2017 and was $11.0 million. The yield on earning assets of 4.51% in the third quarter of 2017 was a slight increase from 4.50% in the third quarter of 2016. Yield on loans increased from 4.54% to 4.62%, and volume considerations increased the average balance by $68.5 million, or 8.5%. Interest income on loans was $10.1 million, an increase of $971,000 over third quarter 2016 interest income of $9.2 million. Interest on PCI loans was $1.4 million in the third quarter of 2017, a decrease of $126,000 year-over-year.  The return on PCI loans increased over this time frame, from 11.32% to 11.76%. Income on securities of $1.8 million in the third quarter of 2017 represented an increase of $93,000 year-over-year as a result of an increase of $15.2 million in the average balances of securities.  The tax-equivalent yield on securities was 3.10% in the third quarter of 2017 and 2016. 

Interest expense increased $459,000, or 24.1%, when comparing the third quarter of 2017 and the third quarter of 2016. Interest expense on deposits increased $503,000, or 32.5%, as the average balance of interest bearing deposits increased $103.4 million, or 12.4%.  Overall, the Bank's cost of interest bearing liabilities increased from 0.79% in the third quarter of 2016 to 0.92% in the third quarter of 2017.  While average interest bearing deposit costs increased from 0.74% in the third quarter of 2016 to 0.87% in the third quarter of 2017, there was a decline of $34.1 million in the average balance of FHLB, other borrowings and long-term debt. Management is shifting from wholesale funding sources to retail deposits.  The cost of FHLB advances for the Bank increased from 1.05% in the third quarter of 2016 to 1.57% in the third quarter of 2017.  The lower average balance of FHLB advances, coupled with the higher rate, resulted in a $13,000 increase in interest expense, year-over-year.

The tax equivalent net interest margin decreased 8 basis points, from 3.82% in the third quarter of 2016 to 3.74% in the third quarter of 2017.  Likewise, the interest spread decreased from 3.71% to 3.59% over the same time period.  The decrease in the margin was precipitated by an increase of 16.5% in the cost of interest bearing liabilities.

The following table compares the Company's net interest margin, on a tax-equivalent basis, for the three months ended September 30, 2017, June 30, 2017, and September 30, 2016 and nine months ended September 30, 2017 and September 30, 2016.

Provision for Loan Losses

The Company records a provision for loan losses for its loan portfolio, excluding PCI loans, and a separate provision for the PCI loan portfolio.  There was a $150,000 provision for loan losses, excluding PCI loans, recorded during the third quarter of 2017.  There was a $250,000 provision for loan losses, excluding PCI loans, recorded during the third quarter of 2016.  There was no provision for loan losses on the PCI loan portfolio during the first three quarters of 2017 or 2016. The $150,000 provision for loan losses in the third quarter of 2017 was to provide the required level of reserve needed when considering the existing loan portfolio and charge-off activity of $972,000 and to support loan growth during the quarter. Additional discussion of loan quality is presented below.

Noninterest Income

Linked Quarter Basis

Noninterest income was $1.2 million for each of the third and second quarters of 2017.  The nominal decrease of $23,000, or 1.9%, in noninterest income on a linked quarter basis was the result of a decline of $12,000 in mortgage loan income, $12,000 in service charges on deposit accounts and $10,000 in other noninterest income.  These declines were partially offset by an increase of $11,000 in gains on securities transactions, on a linked quarter basis.

Year-Over-Year Nine Months

Noninterest income was $3.5 million for the first nine months of 2017 compared with $4.1 million for the first nine months of 2016, a decrease of $555,000, or 13.7%.  Mortgage loan income decreased $436,000, from $599,000 in the first nine months of 2016 to $163,000 for the same period in 2017. The Company discontinued a wholesale mortgage operation at the end of the third quarter of 2016 and shifted to a platform that requires lower overhead but has equivalent or better net revenue potential. Securities gains of $180,000 in the first three quarters of 2017 compared with $608,000 for the same period in 2016. Securities were sold during 2016 to fund a portion of the Bank's loan growth, while in 2017 much of the loan growth has been funded with deposit balance growth.  Offsetting these decreases for the first nine months of 2017 compared with the same period in 2016 were increases of $226,000 in service charges on deposit accounts, $74,000 in income on bank owned life insurance and $9,000 in other noninterest income.

Year-Over-Year Quarter

Noninterest income decreased $180,000, or 13.4%, from the third quarter of 2016 to the third quarter of 2017. Mortgage loan income decreased $193,000.  Gains on securities transactions were $48,000 in the third quarter of 2017, as compared with $88,000 in the third quarter of 2016, a decrease of $40,000. Offsetting these decreases was an increase of $61,000 in service charge income.

Noninterest Expense

Linked Quarter Basis

Noninterest expenses totaled $8.7 million for the third quarter of 2017, as compared with $8.5 million for the second quarter of 2017, an increase of $170,000, or 2.0%. Notable differences between the third quarter of 2017 and the second quarter of 2017 included occupancy expenses, which were $117,000 higher on a linked quarter basis, the result of a full quarter of operating two new offices, which also drove a linked quarter increase of $112,000 in salaries and employee benefit costs.  Additionally, other operating expenses increased $125,000, or 7.6%, as credit expenses increased $91,000 on a linked quarter basis, primarily from the resolution of one nonperforming loan.  Partially offsetting these increases was a decline of $277,000 in amortization of intangibles, as the core deposit intangibles related to previous acquisitions are expiring in 2017.

Year-Over-Year Nine Months

Noninterest expenses were $25.7 million for the first nine months of 2017, as compared with $24.5 million for the same period in 2016.  This is an increase of $1.2 million, or 4.7%.  Salaries and employee benefits increased $718,000, or 5.2%, in the first nine months of 2017 compared with the same period in 2016.  Other operating expenses increased $366,000 over the comparison period.  Occupancy expenses increased $286,000, data processing fees increased $236,000, other real estate expenses increased $187,000 and equipment expenses increased $120,000.  Offsetting these increases were decreases in amortization of intangibles, which declined $552,000, and FDIC assessment, which declined $206,000.

The increases in noninterest expenses in the first nine months of 2017 compared with the same period in 2016 are primarily a reflection of the branch expansion activity that has occurred in 2016 and 2017.  The Bank has opened four new branches over the course of 2016 and 2017. 

Year-Over-Year Quarter

Noninterest expenses increased $428,000, or 5.2%, when comparing the third quarter of 2017 to the same period in 2016. Other operating expenses increased $325,000.  Salaries and employee benefits increased $322,000, occupancy expenses increased $101,000, and data processing expenses increased $91,000.  Offsetting these increases was a decrease year-over-year of $415,000 in amortization of intangibles.

Again, the increases in noninterest expenses in the third quarter of 2017 compared with the same period in 2016 are primarily a reflection of the branch expansion activity that has occurred in 2016 and 2017.  The Bank has opened two new branches since the end of the 2016 comparison period. 

Income Taxes

Income tax expense was $919,000 for the three months ended September 30, 2017 compared with income tax expense of $692,000 in the second quarter of 2017 and an income tax expense of $862,000 for the third quarter of 2016.   The effective tax rate was 27.6% for the third quarter of 2017 compared with 19.1% for the second quarter of 2017 and 26.0% for the third quarter of 2016. The lower rate in the second quarter of 2017 was primarily the result of the exercise of stock options by employees, which reduced income tax expense.  For the first three quarters of 2017, income tax expense of $2.7 million represented an effective tax rate of 25.5%.  For the first three quarters of 2016, income tax expense was $2.7 million, or an effective rate of 27.5%.

FINANCIAL CONDITION

Total assets increased $44.3 million, or 3.5%, to $1.294 billion at September 30, 2017 as compared with $1.250 billion at December 31, 2016.  Total assets increased $89.9 million, or 7.5%, since September 30, 2016.  Total loans were $890.0 million at September 30, 2017, increasing $53.7 million, or 6.4%, from year end 2016 and $78.2 million, or 9.6%, from September 30, 2016.   Total PCI loans were $45.5 million at September 30, 2017 versus $52.0 million and $53.5 million at year end 2016 and September 30, 2016, respectively.

During the first nine months of 2017, residential 1-4 family loans grew $21.9 million, or 10.5%, multifamily loans grew $14.6 million, or 37.2%, commercial loans grew $7.3 million, or 5.7%, commercial mortgage loans on real estate grew $6.0 million, or 1.8%, and construction and land development loans grew by $4.3 million, or 4.4%.  Comparing September 30, 2017 and September 30, 2016, residential 1-4 family loans grew $22.3 million, commercial loans grew $17.9 million, commercial mortgage loans on real estate grew $14.6 million and construction and land development loans grew $14.1 million.

The following table shows the composition of the Company's loan portfolio at September 30, 2017, June 30, 2017, December 31, 2016 and September 30, 2016.

The Company's securities portfolio, excluding equity securities, declined $5.8 million, or 2.2%, from $262.7 million at December 31, 2016 to $256.9 million at September 30, 2017.  Net realized gains of $180,000 were recognized during the first nine months of 2017 through sales and call activity, as compared with $608,000 recognized during the first nine months of 2016.  The decline in the volume of securities was a strategic decision by management to fund strong loan growth with securities sales. Also, there were normal securities amortization, call activity, sales and maturities.

The Company had cash and cash equivalents of $22.6 million, $21.1 million and $22.0 million at September 30, 2017, December 31, 2016 and September 30, 2016, respectively.  There were federal funds sold of $144,000 at September 30, 2017, federal funds purchased of $4.7 million at December 31, 2016 and federal funds sold of $99,000 at September 30, 2016.

The following table shows the composition of the Company's securities portfolio, excluding equity securities, at September 30, 2017, June 30, 2017, December 31, 2016 and September 30, 2016.

Interest bearing deposits at September 30, 2017 were $933.1 million, an increase of $24.6 million, or 2.7%, from $908.4 million at December 31, 2016. MMDA balances have increased $33.1 million, or 29.7%, during 2017, the result of specials run at new branches.  This growth has enabled management to allow brokered deposit balances of $38.9 million to mature and run-off.  As a result, time deposits over $250,000 have declined $9.9 million, or 7.7%.

The following table compares the mix of interest bearing deposits at September 30, 2017, June 30, 2017, December 31, 2016 and September 30, 2016.

FHLB advances were $81.3 million at September 30, 2017, compared with $81.9 million at December 31, 2016 and $109.1 million at September 30, 2016. Long term debt was $0 at September 30, 2017 but totaled $1.7 million at December 31, 2016 and $2.7 million at September 30, 2016.  This borrowing, initially in the amount of $10.7 million, was obtained in April 2014, and the proceeds were used to redeem the Company's then remaining outstanding TARP preferred stock.  The Company fully paid this debt during the first quarter of 2017.

Shareholders' equity was $124.4 million at September 30, 2017, $114.5 million at December 31, 2016, and $114.7 million at September 30, 2016.  Shareholders' equity increased $9.9 million, or 8.6%, from year end 2016 due to an increase in other comprehensive income related to net unrealized gains of $1.3 million in the investment portfolio, an increase of $786,000 in additional paid in capital and net income of $7.8 million in the first nine months of 2017. 

Asset Quality – non-covered assets

Nonaccrual loans were $12.7 million at September 30, 2017, increasing $2.4 million from December 31, 2016 and $1.5 million from September 30, 2016.  The level of total classified and criticized assets has improved over the last five quarters, and the $150,000 provision for loan losses recognized in the current quarter is to provide the required level of reserve needed when considering the existing loan portfolio and charge-off activity of $972,000 and to support loan growth.

The following chart shows the level of nonaccrual loans, classified loans and criticized loans over the last five quarters.

The following table reconciles the activity in the Company's allowance for loan losses, excluding PCI loans, by quarter, for the past five quarters.

Total nonperforming assets totaled $15.4 million at September 30, 2017 compared with $14.7 million at December 31, 2016. Total nonperforming assets decreased $731,000 since September 30, 2016.  There were net charge-offs of $972,000 in the third quarter of 2017 compared with $24,000 in the second quarter of 2017. The increase in charge-offs for the third quarter of 2017 was driven by one large credit and two letters of credit related to previously charged-off loans. Year-to-date 2017 net charge-offs equaled $976,000.

The allowance for loan losses equaled 68.4% of nonaccrual loans at September 30, 2017, compared with 92.7% at December 31, 2016 and 84.5% at September 30, 2016. The ratio of the allowance for loan losses to total nonperforming assets was 57.6% at September 30, 2017 compared with 66.1% at December 31, 2016 and 61.8% at September 30, 2016.  The ratio of nonperforming assets to loans and OREO was 1.7% at September 30, 2017 compared with 1.7% at December 31, 2016 and 2.0% at September 30, 2016.

The following table reconciles the activity in the Company's non-covered allowance for loan losses, by quarter, for the past five quarters.

A further breakout of nonaccrual loans at September 30, 2017, December 31, 2016 and September 30, 2016 is below.

Capital Requirements

The Company's ratio of total risk-based capital was 13.4% at September 30, 2017 compared with 13.2% at December 31, 2016.  The tier 1 risk-based capital ratio was 12.6% at September 30, 2017 and 12.2% at December 31, 2016. The Company's tier 1 leverage ratio was 10.0% at September 30, 2017 and 9.6% at December 31, 2016.  All capital ratios exceed regulatory minimums to be considered well capitalized.  BASEL III introduced the common equity tier 1 capital ratio, which was 12.2% at September 30, 2017 and 11.8% at December 31, 2016.

Earnings Conference Call and Webcast

The Company will host a conference call for interested parties on Thursday, October 26, 2017, at 10:00 a.m. Eastern Time to discuss the financial results for the third quarter of 2017. The public is invited to listen to this conference call by dialing 866-374-8379 at least five minutes prior to the call.  Interested parties may also listen to this conference call through the internet by accessing the "Corporate Overview – Corporate Profile" page of the Company's internet site at www.cbtrustcorp.com.

A replay of the conference call will be available from 12:00 noon Eastern Time on October 26, 2017, until 9:00 a.m. Eastern Time on November 9, 2017. The replay will be available by dialing 877-344-7529 and entering access code 10112892 or  through the internet by accessing the "Corporate Overview – Corporate Profile" page of the Company's internet site at www.cbtrustcorp.com.

About Community Bankers Trust Corporation and Essex Bank

Community Bankers Trust Corporation is the holding company for Essex Bank, a Virginia state bank with 25 full-service offices, 19 of which are in Virginia and six of which are in Maryland.  The Bank also operates one loan production office in Virginia.

Additional information on the Bank is available on the Bank's website at www.essexbank.com.  For information on Community Bankers Trust Corporation, please visit its website at www.cbtrustcorp.com.

Forward-Looking Statements

This release contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that are subject to risks and uncertainties. These forward-looking statements include, without limitation, statements with respect to the Company's operations, performance, future strategy and goals. Actual results may differ materially from those included in the forward-looking statements due to a number of factors, including, without limitation, the effects of and changes in the following: the quality or composition of the Company's loan or investment portfolios, including collateral values and the repayment abilities of  borrowers and issuers; assumptions that underlie the Company's allowance for loan losses; general economic and market conditions, either nationally or in the Company's market areas; the interest rate environment; competitive pressures among banks and financial institutions or from companies outside the banking industry; real estate values; the demand for deposit, loan and investment products and other financial services; the demand, development and acceptance of new products and services; the performance of vendors or other parties with which the Company does business; time and costs associated with de novo branching, acquisitions, dispositions and similar transactions; the realization of gains and expense savings from acquisitions, dispositions and similar transactions; consumer profiles and spending and savings habits; levels of fraud in the banking industry; the level of attempted cyber-attacks in the banking industry; the securities and credit markets; costs associated with the integration of banking and other internal operations; the soundness of other financial institutions with which the Company does business; inflation; technology; and legislative and regulatory requirements.  Many of these factors and additional risks and uncertainties are described in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 and other reports filed from time to time by the Company with the Securities and Exchange Commission. This press release speaks only as of its date, and the Company disclaims any duty to update the information in it.